Recurring net income, which excludes one-time charges,
advanced to 3.56 billion reais ($1.74 billion), or 79 centavos a
share, from 3.32 billion reais, or 73 centavos, a year earlier,
the Sao Paulo-based bank said today in a regulatory filing. That
compares with an average estimate of 79 centavos in a Bloomberg
survey of seven analysts.

Itau, led by Chief Executive Officer Roberto Setubal, 57,
increased banking fees 8.7 percent to 5.08 billion reais in the
quarter, offsetting slower credit growth. The lender’s portfolio
of loans reached 413.4 billion reais, up 15 percent from a year
earlier. That compares with a 16 percent expansion in the first
quarter and 19 percent in the fourth on an annual basis.

“The good news in the second quarter was that there was no
bad news, and we do believe market participants may find some
marginal positives in the quarter to revisit Itau’s investment
case,” Fabio Zagatti, an analyst at Barclays Plc in Sao Paulo,
wrote in a report today.

Defaults Rise

Provisions rose 17 percent to 5.99 billion reais at the end
of June from 5.11 billion reais a year earlier, while declining
0.7 percent from the previous three months, according to the
statement.

Itau’s average default rate for payments at least 90 days
overdue climbed to 5.2 percent at the end of June from 5.1
percent in March and 4.5 percent a year earlier, according to
the statement.

The bank may post a “small” increase in delinquency rates
in the second half of the year, Rogerio Calderon, the head of
investor relations, told reporters on a conference call today.

The lender reduced its forecast for third-quarter
provisions to a range of 6 billion reais to 6.5 billion reais
from 6.5 billion reais to 7.1 billion reais in April, according
to the regulatory filings. The bank expects provisions will
range between 5.7 billion reais and 6.2 billion in the fourth
quarter, according to the statement.

Loan Book

Total assets reached 888.8 billion reais in the second
quarter, down 0.9 percent from the previous quarter and up 12
percent from a year earlier.

Itau said its portfolio of loans excluding car loans will
expand 13 percent to 15 percent in 2012. Auto loans will fall to
between 50 billion reais and 52 billion reais this year,
according to the statement. In February, the lender said it
expected credit growth including auto loans of 14 percent to 17
percent in 2012.

Total loan book, including vehicles, will expand about 10
percent this year, Calderon said.

The bank reduced its workforce to 99,017 employees in the
second quarter from 107,546 a year earlier as it sold its
credit-and debit-card processing unit Orbitall and restructured
the consumer-loan business, according to the statement.

Itau is offering as much as 11.8 billion reais to buy out
the minority shareholders of Redecard SA, Brazil’s second-biggest card-payment processor.